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Statement of Need: This rule finalizes guidelines for the transitional risk-sharing programs, reinsurance and risk corridors, as well as for the risk adjustment program that will continue beyond the first 3 years of Exchange operation. The purpose of these programs is to protect health insurance issuers from the negative effects of adverse selection and to protect consumers from increases in premiums due to uncertainty for issuers.

Summary of the Legal Basis: This rule implements the new Affordable Insurance Exchanges consistent with title I of the Affordable Care Act of 2010.

Alternatives: None. This is a statutory requirement.

Anticipated Costs and Benefits: Payments through reinsurance, risk adjustment, and risk corridors reduce the increased risk of financial loss that health insurance issuers might otherwise expect to incur in 2014 due to market reforms such as guaranteed issue and the elimination of medical underwriting. These payments reduce the risk to the issuer and the issuer can pass on a reduced risk premium to enrollees. Administrative costs will vary across States and health insurance issuers depending on the sophistication of technical infrastructure and prior experience with data collection and risk adjustment. States and issuers that already have systems in place for data collection and reporting will have reduced administrative costs.

Risks: If this regulation is not published, the Exchanges will not become operational by January 1, 2014, thereby violating the statute.